The API Economy

The API economy is radically changing the way organizations do business and operate. The concept of building applications on top of existing applications is a strategic decision that companies are opting for more than ever, in order to stay ahead of their competitors and maintain future growth. According to Programmable Web, the world’s largest API repository, there are now more than 30,000 APIs (or application programming interfaces) in existence.

The trending popularity of the “API economy” on Google

Lets look at some of the Fortune Unicorns (private companies valued at $1billion or more). When it comes to financial value, market impact and brand awareness, Uber, Spotify, and Airbnb are prime examples of success. But what most people don’t realize is that each of these companies has leveraged the services and applications of several specialist, niche service providers to build their consumer-facing, end products.

Much has been written about the success, dominance, questionable tactics, and genius of Uber. Uber isn’t just Uber though, it’s made up of several well known APIs – Google Maps, Checkr, and Braintree to name just a few. Each of these other companies provide Uber critical functionality, yet not core to their competitive advantage.

Mapping and GPS functionality is an essential part of the Uber offering but Uber didn’t build this themselves and instead chose to leverage Google Maps. Uber also runs background checks on all wannabe drivers to ensure customer safety and security, however, Uber outsources this to Checkr, a third party startup that expedites background checks on new hires and delivers them in bulk to businesses. Similarly, Uber’s online and mobile payments functionality is provided by Braintree. Each of these APIs provide Uber with important, necessary functionality, yet functionality that doesn’t make Uber, Uber. The differentiating elements of Uber’s offering lie within the design of the product itself – the actual user interface that customers are engaging with.

Users choose Uber because of these differentiating factors, not the API building blocks behind it.

Proof of this lies in the fact that several of Uber’s competitors, Lyft and Hailo for example, use virtually identical “building blocks” or API foundations to build their consumer offerings. Each of these applications use Google Maps, Braintree, AWS and Twilio. In fact, their end products are almost identical – each is offering an online transportation network service. So what makes them different from one another? It’s what the end users see – it’s all down the the user interface that they’ve created.

So why does Uber choose to build their product with various 3rd party services when their team of developers could potentially build it internally instead? One of the likely reasons is the high level of risk that’s involved in building inhouse and attempting to reinvent the wheel. As a result of outsourcing non core functionality, the Uber developers can focus their time and resources on their own unique functionality and can develop their core capabilities much more quickly than would otherwise be possible.

Secondly, the APIs that Uber chooses to use are all experts in their particular areas. These companies provide their services at scale which means that their expertise has been gained through exposure to hundreds of thousands of customers with varying use cases and demands – industry knowledge and expertise that would be next to impossible to gain from any one use case alone. In addition, these companies are so well established and so focussed on their core offerings, that it would be extremely difficult, if not impossible to recreate equivalent functionality inhouse. Ultimately, spending time and resources recreating features and functionality which do not provide a source of competitive advantage just doesn’t make business sense.

On top of that, there’s a tonne of other factors leading to Uber’s decision, from economies of scale to support to scalability. By leveraging the services and infrastructure of specialist vendors Uber are almost guaranteed to have the most up-to-date technology at the lowest possible price. Furthermore a best-of-breed enterprise solution will also generally have a proven track record of support and uptime which means that Uber can rely on quick fixes in the event of an outage.

The Next Web note a number of additional operational benefits of leveraging APIs; including their ability to create and test new offerings and enabling organizations to tap into a broader application ecosystem that may not be otherwise possible to access.

The bottom line? There’s not much point in owning technology if you’re going to end up years behind the technology that your competition licensed. The API economy is proving to deliver limitless possibilities. In the words of Programmable Web founder John Musser, APIs are the “glue to the Internet”; something that has been gaining much recognition and attention over the last few years but also something that will continue to grow and advance in the years to come.